The DSU has been heralded as the anchor of the rule-based multilateral trading system and one of the crowning achievements of the Uruguay Round. However, the mechanism has so far failed to gain credibility among developing countries, for reasons that will be discussed further in this Factsheet. In relation to the dispute settlement mechanism under GATT 1947however, the present DSP is a clear improvement. At the same time, its reform to render it more attractive for developing countries remains a major challenge and one that has been singled out by the Doha mandated work programme for “improvements and clarifications of the Dispute Settlement Understanding”. Although it was agreed that WTO Members shall “aim to agree on improvements and clarifications not later than May 2003”, there has been no progress in addressing many of the proposals that have been put forward by developing countries for a meaningful reform of the DSU.

Main Features of the DSU
Members can take recourse to the dispute settlement process for matters falling within the purview of GATT 1994, other agreements on goods, the General Agreement on Trade in Services, the Agreement on TRIPs, the pluri-lateral Agreements insofar as those agreements prescribe it, the Dispute Settlement Understanding and the WTO Agreement itself.

The agreements on goods, except for those relating to textiles and clothing, anti-dumping and customs valuation, follow the consultation and dispute settlement provisions of Articles XXII and XXIII of GATT 1994, as elaborated and applied by the Dispute Settlement Understanding. Articles XXIII of GATT 1994 provides that a dispute settlement process may be initiated if a Member considers that:

• any benefit accruing to it under GATT 1994 is being nullified or impaired, or

• attainment of any objective of GATT 1994 is being impeded as a result of the following:

i. the failure of another Member to carry out it’s obligations under GATT 1994, or
ii. the application by another Member of any measure, whether or not it conflicts with the provisions of GATT 1994, or
iii. the existence of any other situation.

The agreements on services and TRIPs also generally follow the process of the DSU.
There is, however a serious limitation. The ultimate relief which the process provides, is authorisation to the affected Member to take retaliatory measures against the offending Member, but this tool is ineffective in the hands of a Member who is economically weak, because the option of retaliating against economically strong Members is largely theoretical.

In addition to this limitation, while the dispute settlement process has a discouraging effect on Members’ encroaching on the rights of others and ignoring their own obligations, its effectiveness depends a good deal on the will of the Members to abide by it. As a result, developed countries are much better positioned to take advantage of the highly resource-demanding legalised system and they have done so. Many developing countries do not even consider bringing cases, or otherwise participating as a third party in the dispute settlement system. In fact, there is little rationale for them to invoke the process on account of the significant costs and the uncertain benefits of participation.

Stages in the Process.

• Consultation - The aggrieved Member asks the erring Member for consultation. This is done through the Dispute Settlement Body (DSB), concerned councils and committees. If no consultation takes place, the aggrieved Member initiating the process may ask for the formation of a panel. If any other Member feels that it has a substantial trade interest in the matter in dispute, it may request to join the consultation and if this is denied, can enter into consultation with the relevant party.

• Panel - The DSB has to establish a panel promptly, unless it decides by consensus not to do so. Since the Member proposing the establishment of the panel is unlikely to agree to a decision not to establish the panel, negative consensus is not a possibility, so its establishment is almost automatic. Normally a panel consists of three Members. The parties to a dispute, however, have the option of agreeing to a five-Member panel. Panel members are usually chosen from a list maintained for this purpose. The list includes persons who have acquired direct experience in the field of the GATT/WTO or who have served as senior trade policy officials of Members, or who have taught or published on international trade law or policy.

A panel is expected to complete its work within six months. However the DSU does not provide for the eventuality when a panel fails to submit its report within the stipulated time. One expects that the panel will generally adhere to the time-limits; but there is no relief should it fail to do so.

• Appeal and Consideration in the DSB - The panel report is thereafter considered by the DSB. When a party to the dispute makes an appeal against the panel report it will be considered by the Appellate Body, which will normally give its decision within 60 days of the formal notification of the party to go for appeal. The Appellate Body is a standing body of seven members, three of whom normally consider a particular appeal. This body, although subject to significant constraints, operates as a form of world trade “supreme court.” The report of the Appellate body has to be adopted by the DSB unless it decides by consensus not to do so. In actual practice, adoption of the report will be automatic as mentioned earlier.

• Implementation of Recommendations by the Erring Member - It is expected that the Member to whom the recommendation for action has been addressed, will implement the recommendation promptly. The time period is left to the concerned parties and the arbitration process.

Why Most Developing Countries are Not Active Participants
Developing countries other than the better-placed ones such as Brazil and India, are less likely to participate actively in WTO litigation because:

• individual developing countries’ relatively smaller value, volume and variety of exports, result in fewer economies of scale in mobilising legal resources, and
• the extremely high cost of access to the system
• the high potential cost of losing the case

Because individual developing countries are less active traders, they are less likely to be repeat players in WTO litigation, thus there is no build up of the necessary skills. In addition the cost of bringing an individual WTO case is extremely high, further reducing developing countries’ incentives to participate. Developing countries can face fees ranging from US$200-$1,000 and more per hour when they hire private law firms to advise and represent them in WTO cases.
The small supply of lawyers educated in WTO law within developing countries, thus increases the cost for developing country firms and governments and in addition, makes them less likely to become aware of WTO violations and to hire and train lawyers to challenge these violations.

Where developing countries and their commercial constituents have little faith in the WTO system, they are less likely to develop mechanisms to detect violations of WTO law that affect their interests. Thus, even when they become aware of measures against which they could invoke their legal rights, they are less likely to develop pro-active strategies to defend these rights and interests, if they believe that the system is structured in such a way that they cannot do so in a cost-effective manner. If policymakers do not address structural issues then all the talk about the need for “capacity-building” misses the point, since it will not alter the central fact of structural incentives against developing country participation in the dispute settlement system.

What are the Primary Challenges for developing countries in participating more meaningfully in the WTO DSU?

• Lack of legal expertise in WTO law and the capacity to organise information concerning trade barriers and opportunities to challenge them
• Lack of financial resources including for the hiring of outside legal counsel, to effectively use the WTO legal system
• Fear of political and economic pressure from the developed countries, undermining their ability to bring WTO claims
• Provision for collective action in enforcing recommendations as relief through retaliation is quite impractical for developing countries.
• The vulnerability of many developing countries due to their dependence on developed countries for budgetary support

How can developing countries better participate in this Process?

By:
• Co-operative action. They need to establish a joint service for legal expertise, or a South-South network accessible and available to all, at minimal or no cost
• The regular exchange of information and experience among themselves
• Undertaking regular group consultations and reviews regarding the functioning of the dispute settlement system, including the outcomes of individual cases.
• Legal scholars need to work with international institutions to assist developing countries in developing new mechanisms to offset current structural biases under the WTO’s legalised system.
• Developing legal expertise in WTO law on National levels, for example through educational institutions.

Suggestions for Improvement in the Process

From the perspective of the developing countries, the major challenges for a reform of the DSU revolve around:

• Ensuring equal access to the dispute settlement mechanism
• Adjustment of the time frame for resolution of disputes
• Provision of compensation for loss pending the resolution of disputes
• More effective implementation of disputes
• The operationalising of all special and differential provisions.
• The clarification of the rights of third parties
• Clearer definition and understanding of the role of the WTO secretariat, the Panels and the Appellate Body
• Measures to reduce misuse of the DSU
• Measures to reduce the cost to developing countries of participating in dispute settlement, both as initiators of disputes and as respondents, should be adopted.
• Arrangements for the creation of a legal cell, preferably outside the frame of the WTO Secretariat, to provide legal assistance to developing countries in handling disputes and in developing legal expertise on WTO rules of arbitration.
• The adoption of measures to reduce the cost to developing countries of participating in dispute settlement, both as initiators of disputes and as respondents.
• The creation of a legal cell, preferably outside the frame of the WTO Secretariat, to provide legal assistance to developing countries in handling disputes and in developing legal expertise on WTO rules of arbitration.